US Poultry Outlook Report - March 2006 - By U.S.D.A., Economic Research Service - This article is an extract from the March 2006: Livestock, Dairy and Poultry Outlook Report, highlighting Global Poultry Industry data.

2006 U.S. Broiler Exports Forecasts Lowered on Avian Influenza Concerns Abroad

2005 fourth-quarter broiler exports fell short of 2004 exports due to the spread of Avian Influenza (particularly the H5N1), which is likely to put downward pressure on consumer demand for broilers in first the half of 2006. Turkey exports finished the fourth-quarter of 2005 strong and are expecting to continue in 2006.

Broiler meat production rose sharply in January and is expected higher in February, but slowing growth in weekly chick placements points toward slowing growth in broiler meat production by the end of the first and into the second quarter. Prices for almost all broiler products continue to be depressed due to strong production growth and an uncertain export situation.

In 2005, wholesale table egg prices (NY grade A large) declined 20.3 percent to 65.5 cents a dozen compared with 2004. The price fall was mainly due to the rise of U.S. layer flocks, boosting egg production and the inelastic demand for eggs. Similarly, retail prices dropped 9.1 percent to $1.22 per dozen for the same period U.S. exports of total shell eggs and egg products (in shell egg equivalent) rose 23 percent to 205.7 million in 2005. The increase was mainly due to lifting of the 2003-2004 trade restrictions imposed on U.S. exports of shell eggs and products, as well as increased demand associated directly or indirectly with the Highly Pathogenic Avian Influenza outbreaks in East and Southeast Asia.

Special Section

Japan’s imports of poultry meat went through two shifts as a result of the 2003 HPAI outbreaks in major East and Southeast Asian trading partners. The first shift was to replace trading partners with HPAI outbreaks with HPAI-free exporters as major import sources. The second shift, which began in February 2004, was to substitute imports of cooked and prepared poultry meat for imports of fresh, chilled, or frozen poultry meat to respond to consumers’ food safety concerns.

Broiler Exports Start off Slow in First Quarter

Broiler exports for 2006 are expected to be up 3 percent from 2005, with most of the increase occurring in the second half of the year. Exports are expected to resume growth as concerns about eating poultry subside in those countries where AI has occurred and low prices encourage price-sensitive markets to increase purchases. High U.S. broiler meat inventories have made markets more competitive, depressing leg-quarter prices. U.S. broiler exports are expected to experience more growth in the second half of the year.

In 2005, fourth-quarter broiler exports were 1,286 million pounds, down 14 percent, due to a sharp decline in December exports. December 2005 broiler exports totaled 326 million pounds, a 29-percent decline from December 2004. Most of the sharp declines in shipments came from Russia, the. largest importer of U.S. broiler meat. January 2006 broiler exports were 426 million pounds, down 3 percent from last year. The primary reason for these low shipments is the drop in exports to countries such as Ukraine, Turkey, and Georgia. Where concerns about AI may have reduced consumer demand, however, exports to many of these countries increased from December, indicating a possible recovery in demand. As consumers become more informed about AI, how it is transmitted, and how to handle and cook broiler meat, low broiler prices are expected to entice more price-sensitive consumers to buy more chicken.

Turkey Exports Continue Strong

Turkey exports totaled 37 million pounds in January 2006, down 11 percent from the previous year. The primary reason for this decline is a substitution effect caused by low leg-quarter prices. Mexico appears to have reduced their demand for U.S. turkey meat while expanding their demand for broiler meat.

In 2005, Mexico accounted for over 60 percent of U.S. turkey shipments, the largest importer of U.S. turkey meat. Fourth-quarter 2005 turkey exports were 149 million pounds, up 12 percent from the previous year. One of the chief reasons for this increase has been growth in the Mexican economy. As the Mexican economy continues to grow in 2006, it is expected that shipments of turkey meat will increase.

Broiler Production Higher in January, Production Expected Higher in 2006

Broiler meat production for January 2006 was reported at 3.0 billion pounds, up 5.7 percent from last year. The increase in meat production was a result of both a higher number of broilers being slaughtered (up 3.4 percent) and higher average weights (up 2.4 percent to 5.5 pounds). With the production increase in January and an expected comparable increase in February, the estimated meat production for first-quarter 2006 was increased to 8.9 million pounds, a 3.6-percent increase from a year earlier.

However, weekly chick placements for growout over the last 5 weeks (February 4 to March 4) averaged 174 million birds, fractionally below same period in 2005, indicating that producers have begun to slow production growth in response to lower prices. Even with slightly lower bird numbers, meat production is expected to increase in the second quarter due to higher average weights at slaughter. The overall broiler meat production estimate for 2006 is now 36.2 billion pounds, up 2.3 percent from 2005.

Revisions in the 2005 broiler meat production estimates contained in the Poultry Slaughter 2005 Annual Summary produced small changes in the quarterly estimates and raised total 2005 production to 35.4 billion pounds. For 2005, the higher production (up 3.8 percent from 2004) was due to a 1.9-percent increase in the average weight at slaughter and a 1.2-percent increase in the total number of broilers slaughtered.

Over the first 2 months of 2006, the 12–city whole broiler price averaged 63.2 cents per pound, down 11.5 percent from the same period in 2005. Prices for most broiler products have continued to fall compared with fourth quarter 2005 and are considerably lower than in the first 2 months of 2005. Boneless-skinless breast meat prices in the Northeast market averaged $1.01 per pound during January and February, down 31 percent from last year. Prices for rib-on breasts averaged 63 cents per pound, a decline of 29 percent from same time in 2005. Prices for other broiler products also declined heavily compared with a year earlier. Broiler prices have trended downward over the last several months due to a combination of production increases (up 4.3 percent in fourth quarter 2005) and weaker export demand. These circumstances have pushed prices down and caused cold storage stocks to increase. Leg quarter prices, which fell sharply in fourth-quarter 2005, averaged 23.5 cents per pound during the first 2 months of 2006, down 22 percent from the same period in 2005. Even with broiler meat production increases expected to slow after the first quarter, broiler prices are not expected to strengthen substantially in the first half of 2006, due to high stock levels and an uncertain export situation.

Turkey Production Forecast Up in 2006

Turkey meat production in 2006 is forecast at 5.58 billion pounds, up 1 percent from 2005, but still lower than in 2002 or 2003. The increase in meat production in 2006 is expected to come from a combination of a higher number of birds slaughtered and higher weights, although weights in the first quarter of 2006 are not expected to be significantly higher than in the first quarter of 2005. During 2005, placements of turkey poults for growout totaled 276 million, slightly below 2004. However, in December 2005 and January 2006 placements were up significantly. In January 2006, turkey meat production was 447 million pounds, down 1.8 percent from a year earlier as a 2-percent gain in average slaughter weight was offset by a 3.6-percent decline in the number of birds being slaughtered.

With little growth in meat production and relatively strong export demand, cold storage holdings of both whole birds and turkey parts were lower through most of 2005. Turkey stocks at the end of 2005 were revised up slightly to 206 million pounds, which is 28 percent lower than at the end of 2004. Lower turkey stocks are expected to continue during most of 2006, although ending stocks for 2006 are expected to be slightly higher than in 2005. With lower stock levels and only a small increase in meat production forecast, prices for whole birds are expected to remain above their year-earlier levels, especially in the first half of the year. However, prices for turkey parts and processed turkey products will be pressured by low prices for almost all broiler products.

Wholesale Egg Prices Post Sharp Decline in 2005

For 2005, wholesale table egg prices (NY grade A large) declined 20.3 percent from 2004 to average 65.5 cents a dozen. Retail egg prices registered a 9.1 percent drop from $1.34 to $1.22 per dozen during the same period. In 2006, wholesale egg prices are expected to move upwards to between 69-73 cents per dozen and to the mid $1.20’s at the retail level.

Wholesale prices were at $1.15 per dozen in the first quarter of 2004, an all-time historical high, but declined rapidly to 66.2 cents per dozen in the third quarter, and averaged 82.2 cents per dozen for all of 2004. By the second quarter of 2005, wholesale prices fell to 55.9 cents per dozen, or less than half the record firstquarter 2004 price. Prices rose in the fourth quarter 2005 to 75.0 cents per dozen, compared with 68.0 cents per dozen a year earlier.

The substantial fall of egg prices in the first three quarters of 2005 was due mainly to larger U.S. layer flocks, boosting egg production, and the relatively inelastic price demand for eggs. In the first quarter of 2004, U.S. egg-type layers averaged 280.3 million birds. U.S. layers increased steadily, peaking at 289.2 million birds in February 2005. In March 2005, egg producers started to cut back laying flocks, decreasing their number to as low as 280.0 million birds in July. As third-quarter egg production fell below year earlier, egg prices rallied to an average 75.0 cents per dozen in fourth quarter 2005, and producers again expanded flocks. Layer flocks expanded to 290.8 million birds in January 2006, and egg production in November-January averaged about 1 percent above a year earlier. In the face of a larger egg production level, prices declined substantially to only 59 cents per dozen in February 2006, well below the 85.5 cents per dozen 2 months earlier in December 2005.

Total egg production in 2005 was a record high of 7,504 million dozen, compared with 7,440 million dozen in 2004, or a growth of just under 1 percent. In 2006, total egg production is expected to increase by more than 2 percent, to set a record high of about 7,645 million dozen, reflecting the building of the laying flocks in the second-half 2005.

Lower shell egg prices increased the quantity of federally inspected eggs that go to the breaking market by 6.3 percent in 2005. As prices for shell eggs improve in 2006, growth in the egg-breaking market will likely slow to 2,100 million dozen, or around 2 percent over 2005.

Exports of Eggs and Egg Products Up Sharply

U.S. exports of total shell eggs and products (in shell egg equivalent) rose from 167.6 million dozens in 2004 to 205.9 million dozen in 2005, or nearly 23 percent. This is the highest export level since 1998, when exports were 219 million dozen. The increase is mainly due to two factors:

1. Lifting of trade restrictions imposed on U.S. shell eggs and egg products following the recovery of U.S. layer flocks from Low Pathogenic Avian Influenza outbreaks of 2003-2004. U.S. exports were seriously affected during the first half of 2004 (see chart), and

2. Rising demand for shell eggs and products, associated directly or indirectly (trade diversions) following the Highly Pathogenic Avian Influenza (HPAI) outbreaks in several Asian countries in late 2003 and in 2004.

These two factors have boosted U.S. exports of shell eggs and products, with Asian markets replacing the traditional NAFTA markets (Canada and Mexico) as major importers of U.S. shell eggs and products. For example, U.S. exports of eggs and egg products (in shell egg equivalents) to Japan tripled from 15.7 million dozen in 2004 to 46.1 million dozen in 2005. Similarly, U.S. exports to Hong Kong rose from 14.5 to 24.8 million dozen, and those to China increased from 2.3 to 5.3 million dozen.

In total, U.S. exports of shell eggs to major Asian markets (Japan, Hong Kong, China, South Korea, Thailand, and the Philippines) increased from 34.9 million dozen in 2004 to 81.7 million dozen in 2005, a rise of over 134 percent. The combined share of U.S. total eggs and egg product shipments to these six Asian countries grew to about 40 percent, up from only 21 percent in 2004. The rise in the U.S. export share to Asia nearly matched the decline in exports to NAFTA countries, whose share dropped from 48 percent in 2004 to only 31 percent in 2005.

U.S. exports to EU-25 countries were down nearly 2 percent to 22.01 million dozen in 2005. U.S. exports rose from 5.3 to 7.5 million dozen for Spain and from 1.4 to 4.3 million dozen for Germany, but declined from 12.0 million to 6.2 million for the United Kingdom. Other U.S. growing export markets include Brazil, rising to 2.7 million dozen from 660,000 dozen, and Israel, up to 4.4 million dozen from 1.2 million dozen in 2004.

Most of the growing U.S. exports in 2005 were processed egg products, which increased from 61.1 million dozen in 2004 to 97.8 million dozen. Exports of shell eggs were up slightly by 2.1 million dozen.

Egg exports in 2006 are expected to decline slightly to 200 million dozen, as shipments from Asian exporting countries previously infected with HPAI slowly recover. In addition, U.S. exporters face keen competition from their Brazilian counterparts. U.S. exports to Europe will most likely strengthen, due mainly to U.S. competitive prices.

Avian Influenza Impact on Japan’s Poultry Pattern of Imports

Japan is one of the world’s largest importers of poultry meats. In 2005, total imported shipments of fresh, chilled, frozen, and preserved poultry meat amounted to 1.68 billion pounds, accounting for nearly 40 percent of domestic consumption. Imports were valued at nearly $2.02 billion dollars (table 1), and per capita consumption at 35.3 pounds in 2002 was rising11 percent over the previous 5 years.

The outbreak of Highly Pathogenic Avian Influenza (HPAI) in East and Southeast Asia’s major exporting countries at the end of 2003 triggered a shift by Japanese importers to poultry from HPAI-free countries, as imports of fresh, chilled, and frozen poultry meat from HPAI infected countries were banned. As a result there was a significant change in Japan’s import patterns of poultry meat and products by origin.

Japan’s Imports of Fresh, Chilled, or Frozen Poultry Meat

To analyze the impact of HPAI outbreaks in East and Southeast Asian countries, Japan’s major poultry meat suppliers were divided into two groups; HPAI-infected countries, including China and Thailand, and infection-free countries such as the United States and Brazil.

Before East and Southeast Asia’s 2003 AI outbreaks, Thailand and China were the major exporters of poultry meat to Japan. Together the two countries accounted for nearly 57 percent of Japan’s 1.19 billion pounds of fresh, chilled, and frozen poultry meat imports in 2002 (table 2). Brazil’s share was 31.2 percent, the United States share was 9.4 percent, and all other countries’ share was over 2 percent. Japan’s first sharp drop in poultry imports was recorded late in 2003, following the import embargo from HPIA affected countries. Within 2 months, from December 2003 to February 2004, Japan’s import share from Thailand dropped from as high as 50.6 percent to virtually zero, and China’s share dropped from 17.7 percent to 5.6 percent. The combined share of these two countries decreased from a monthly average of 45 percent in 2003 to 3.8 percent in 2004, and a monthly average of only two-tenths of 1 percent in 2005.

In volume terms, Thailand’s exports of poultry meat to Japan decreased at a steady pace from 413.5 million pounds in 2002 to 0.14 million pounds in 2005. Similarly, exports from China declined sharply from 263.3 million to only 2.2 million pounds during the same period (table 2).

Japan looked for alternative markets to supply fresh, chilled, and frozen poultry meat to cover its domestic requirements following the HPAI outbreaks, shifting away from the nearby infected suppliers to imports from uninfected countries such as Brazil. At first, Brazil’s shipments declined from 51.5 million pounds in October 2003 to as low as 15.4 million pounds in December 2003. But later on, Japan’s imports rose to a monthly average of 54.5 million pounds during all of 2004. In 2005, Japan imported a monthly average of 69.74 million pounds from Brazil and 5.5 million pounds from the United States (figure 1).

The major beneficiary of this dramatic shift was Brazil. Its import share rose from its lowest level of 23 percent in December 2003 to nearly 91 percent in February 2004, and averaged over 88 percent from March 2004 to December 2005. On the other hand, Japan’s import share from the United States first dropped from 5.8 percent in December 2003 to 2 percent in February 2004, but rebounded to 18 percent in September 2004, to average 7.8 percent for all of 2004. In 2005, the U.S. share declined slightly to 7.03. This limited U.S. loss was due to constraints on the ability to competitively price certain products into Japan’s market. All other countries’ share rose slightly from 2 to 3 percent during 2002-2005.

Japan’s imports from the world have rebounded from the low level of 794 million pounds in 2004 to 946 million pounds in 2005. Total imports were short of the 2002 pre-HPAI-outbreaks level of approximately 1.19 billion pounds (table 2). More importantly however, during 2004-2005, Japan shifted away from importing fresh, chilled, or frozen poultry meat to importing prepared pre-cooked meat.

Japan’s Imports of Poultry Meat Preparations

There is a perception that people can contract bird flu by handling any poultry meat. This perception triggered Japan’s shift away from all poultry meat, but especially fresh, chilled, or frozen poultry meats. As people became aware that cooking meat kills the HPAI virus, consumer demand for prepared and preserved poultry meat increased, and Japanese importers responded by increasing the quantity of imported prepared, pre-cooked poultry meat.

Japan’s total imports of cooked poultry meat preparations initially dropped sharply from 59 million pounds in December 2003 to 2.5 million pounds in March 2004, in a first response to HPAI outbreaks. However, Japan’s imports of cooked poultry meat preparations recovered rapidly to exceed their pre-HPAI outbreaks level. The increase of imports of cooked poultry meat preparations were likely needed to rebalance Japan’s domestic demand for poultry meat, given that lower quantities of uncooked poultry products (fresh, chilled, or frozen poultry meat) were being imported. In December 2005, imports of poultry meat preparations amounted to 73 million pounds, and for all of 2005 total imports were 44 percent higher than those in 2004 (table 2 and figure 2).

Major Suppliers of Poultry Meat Preparations

Japan’s imports of pre-cooked poultry meat preparations (HS 160231, HS 160232, and HS 160239) originate mainly from China and Thailand. In first response to HPAI- outbreaks, Japan’s combined imports from the two countries dropped from 58 million pounds in December 2003 to 1.6 million pounds in March 2004. In December 2004, shipments rose to 67 million pounds and to a record 73 million pounds in December 2005.

In December 2003, immediately before the announcement of the discovery of HPAI, Japan imported 68 percent of its total poultry meat preparations from China, 31 percent from Thailand, and less than 2 percent from the rest of the world. From February to March 2004, the monthly average shares were in favor of Thailand at 46 percent, China 26 percent, Brazil less than 2 percent, United States less than 1 percent, and 26 percent for the rest of world.

Major poultry meat suppliers during this critical period (February-April 2004) included Canada, United Kingdom, South Korea, and Malaysia (figure 3). However, from May 2004 to the end of 2005, China is shares averaged 55 percent of Japan’s total imports of pre-cooked and prepared poultry meat, followed by Thailand at 43 percent, and all other countries, including Brazil and the United States averaging less than 2 percent.

Japan’s Imports of All Poultry Meats and Implications for Trade

As a result of the HPAI outbreak in East and Southeast Asia Japan’s imports of all poultry meat including fresh, chilled, frozen, preserved, and prepared declined sharply, reaching their lowest level in February through March 2004. Initially, imports of both cooked and non-cooked categories declined by 22 percent in 2004 compared with 2002, but they rose 29 percent in 2005 over a year earlier. In 2005, Japan’s imports of all poultry meat (cooked and non-cooked) were slightly higher compared with 2002, the year before the HPAI outbreaks of late 2003. More important, fresh, chilled, and frozen poultry meat decreased by 20 percent, while poultry meat preparations rose by 50 percent during 2002-2005 (figure 4).

In summary, Japan’s imports of poultry meat went through two shifts as a result of the 2003 HPAI outbreaks in major East and Southeast Asian trading partners. The first shift was to replace HPAI-free exporters as major import sources. The second shift, which began in the second quarter 2004, was to substitute imports of cooked and prepared poultry meat for imports of fresh, chilled, or frozen poultry meat to respond to consumers’ food safety concerns.

Japan seemed to be willing and able to quickly divert its import demand for poultry products from those countries in East and Southeast Asia experiencing highly pathogenic Avian Influenza outbreaks, to HPAI-free countries, especially Brazil. Brazil has become the principle supplier of fresh, chilled, and frozen poultry meat to Japan. However, U.S. gains were limited due to constraints on the ability to competitively price certain products into the Japanese market. Essentially, U.S. poultry products are of high meat quality, but do not appear to be able to compete in supplying boneless leg cuts to the Japanese market.

Japan’s imports of pre-cooked and prepared poultry meat were initially disrupted from its traditional suppliers—China and Thailand—during the first few months of 2004. Japan shifted to non-traditional suppliers to supplement its total imports of pre-cooked and prepared poultry meat. However, starting May 2004, imports resumed from China and Thailand who had a combined share of over 97 percent during May 2004 to December 2005. All other suppliers of pre-cooked and prepared poultry meat delivered less than 3 percent during the same period.

Japan’s post HPAI-outbreaks trade patterns provided a new challenge for global poultry meat exporters. While the poultry industry in China and Thailand reacted rapidly to gain market shares in Japan for pre-cooked and poultry meat preparations, and consequently benefited from the new trend, the poultry industries in the United States and Brazil are now investing heavily, preparing to increase their pre-cooked poultry meat exports and market shares in the near future.

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Source: Livestock, Dairy and Poultry Outlook - U.S. Department of Agriculture, Economic Research Service - March 2006